Biden administration official blames Trump, Jan. 6 for Fitch AAA US downgrade

The United States’ credit rating has taken a hit as Fitch, a prominent ratings agency, officially downgraded the nation’s long-term foreign-currency issuer default rating from “AAA” to “AA+” on Tuesday. The downgrade reflects concerns over the country’s fiscal deterioration and its heavy debt burden.

An administration official from President Biden’s team told FOX Business on Wednesday that the underlying model for the credit rating was initially “AAA” until the Trump administration. The official claimed that the model experienced a dip during the Trump era, and despite efforts since 2020, Fitch’s change in consideration on various factors meant the model could not recover.

According to the official, Fitch repeatedly cited the January 6 Capitol riots as a factor in its decision, highlighting the instability of governance as one aspect of the credit rating downgrade. In its announcement, Fitch also pointed to America’s “erosion of governance,” rising deficits, and tightening by the Federal Reserve as contributing factors. Additionally, the agency predicted that the U.S. economy could slip into a mild recession in the fourth quarter.

However, U.S. Treasury Secretary Janet Yellen disagreed with Fitch’s move and issued a statement pushing back on the decision. Yellen argued that Fitch’s ratings model declined significantly between 2018 and 2020, and the agency’s change in the credit rating is based on outdated data. She emphasized that several indicators, including those related to governance, have shown improvement under the Biden administration. Yellen cited the passage of bipartisan legislation to address the debt limit, invest in infrastructure, and enhance America’s competitiveness as evidence of progress.

Credit ratings are crucial for investors assessing the risk profile of companies and governments when they raise financing in the debt capital markets. Lower credit ratings typically result in higher financing costs for borrowers.

The downgrade of the U.S. credit rating highlights the ongoing economic challenges facing the nation. The Biden administration’s response suggests that they are committed to addressing the concerns raised by Fitch and are confident in their policies to improve the country’s economic stability and governance. However, the impact of the downgrade on the U.S. economy and its borrowing costs remains a subject of concern for policymakers and investors alike.